Audit Process
Sears Roebuck and Company was established in 1893 by Richard W. Sears and Alvah C. Roebuck. The company is a wholly owned subsidiary of Sears Holdings Corporation (SHLD) that has been publicly traded on NASDAQ since 1906. As the nation's largest provider of home services, the corporation employs 89,000 people in the United States and U.S. territories in approximately 547 full-line Sears stores. (Sears, 2017)
As internal audit, it is our duty to provide independent, objective assurance to improve the company’s operations. The internal audit activity “helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance
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This is done by gathering information about operations, reviewing financial activity and business procedures, conducting more interviews with key personnel, and observing unit procedures. Auditors will create flowcharts, determine whether internal controls and procedures are operating properly, identify areas of risk and concern, and select which internal controls to test. Internal controls intended to prevent and detect misstatements should also be evaluated and tested.
Analytical analysis can possibly detect misstatements. This process compares the company’s revenue and industry trends. Auditors also want to be aware of the economic conditions when analyzing revenue financial ratios and sales analysis. Gross margin percentage allows auditors to see changes in profit. A simple chart listing: sales, cost of sales, gross profit, gross profit percentage, year-end account receivable, and account receivable turnover of the current year and past two years can help spot fictious accounts receivables. (Arnes,2014) Unusual trends can be spotted on a graph that includes monthly sales data.
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Working papers provide assurance that audit work is accurate and complete. Any issues discovered will be discussed with managements as it occurs, prior to completion of fieldwork. The reporting phase includes writing reports addressing results found during fieldwork, management action plans, and an audit report. The follow-up phase is when the auditor follow-ups, in the given timeframe, on recommendations to see if they were implanted. References
Accounting Tools. (2017). Management assertions in auditing. Retrieved from
Moreover, the auditor should preform test for effectiveness of internal controls. He may interview management by asking questions on the process of the transactions and operational activities. He may discuss with management the process of some transactions from beginning to end and then test it by using sample testing. Also he/she should make sure that there is proper control of activities; policies and procedures for adequate segregation of duties are met.
Stage 2: Test of internal controls - By testing the effectiveness of the internal controls the auditor can determine the control risk that lies within the company. The audit team can perform tests of controls by making inquiries of appropriate client personnel, examining documents, records, and reports maintained by Smackey, observing control-related activities such as the one done for the inventory procedures for returned Best Boy Gourmet dog food, and re-perform the client procedures.
To conduct the audit, the firm must acquire sufficient understanding of the internal control processes to help determine the nature and timing of the audit. However, the audit is not designed to identify deficiencies in internal control or provide assurance. The firm will make the audit committee aware of any significant deficiencies that come to Anderson, Olds, and Watershed’s attention during the audit.
To begin the review process there should be some knowledge of the processes and procedures in the accounting department. It may be a good idea to observe all of the procedures that go into creating the financial statements. Look for any weaknesses or questionable practices and create a list of questions. Then in the next phase the auditor can conduct interviews to get a better understanding of the accounting staff. Observations and interviews can set the groundwork and provide information into any nuances or potential fraud or abuse. Any material weaknesses found can be further explored.
Internal audit- In-house assessment to ensure that all policies and external standards are followed, implemented, and operating effectively.
Auditors have the responsibilities as well as management to report internal controls. The auditors must examine closely management’s claim of effectiveness and also physically test the controls. After the examination, the auditors should express their opinion and any recommendations to fix any internal control weaknesses.
Auditors should always evaluate the design and test the operating effectiveness of a company’s internal control. The key procedures of the evaluation of design are fulfilled by inquires, observations, and inspections. The same procedures can be used to test the operating effectiveness as well.
The first step in that evaluation is to document how transactions or processes are initiated, authorized, recorded, processed, and reported in sufficient detail and to identify points in the process where fraud or error could occur. A clear record of the controls in place will assist management and auditors in identifying the controls to test. It will facilitate the auditor’s understanding and assessment of the company’s controls as well as contribute positively to the auditor’s assessment
a. “Analytical procedures are an important part of the audit process and consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data. Analytical procedures range from simple comparisons to the use of complex models involving many
Even though The Schwan Food Company is a private company, since the company’s goal was to double its size in five years, establishing an internal audit function could provide assurance and consulting services to help the company achieve its objectives and expand globally. The four factors that may have caused The Schwan Food Company to change its internal control practices and corporate governance structure are,
The auditor must obtain an understanding of the entity and its environment, including internal controls, so that they can identify and assess the risks of material misstatement on financial statements due to fraud or error and design and perform further audit procedures.
An audit is based when management prepares the financial statements, maintain internal control over financial reporting, and provide relevant information and access to the auditor.
• Describe in audit reports the scope of the testing of the issuer’s internal control structure and procedures.
• To inspect and, where needed, assist the corporation create internal governance practices concerning cybersecurity, comprising upward reporting to the board, as well as audit procedures to monitor current compliance.
The role of internal audit is to provide independent declaration that an organization’s threatadministration, governance and internal control processes are functioning effectively. Internal auditors deal with concerns that are essentially important to the existence and success of any organization. Unlike external auditors, they aspect beyond financial possibilities and statements to reflect wider problems such as the organization’s reputation, development, its power on the location and the approach it treats its organizations.In summary, internal accountantssupport organizations to thrive.